The always counter-intuitive Adam Carr has this excellent take:
"The first thing we need to understand is what this data isn't telling us. It isn't telling us that the Australian economy is slowing under the weight of tight monetary policy and any suggestion that it is, is simply wrong: outrageous even…
What this data is telling us is that the Australian economy remains strong, and that the quarter-on -quarter moves are being influenced by base effects, noise and producers underestimating growth (running down inventories) in the mistaken expectation that that the world was ending. Volatility basically.
Why is this true? Well for a start, domestic demand – what consumers, business and government spend - rose 0.6% in the quarter and this follows a 0.9% rise last quarter, to be 4.4% higher over the year. This is strong, as the average annual growth rate (last 5yrs or so) is about 3.75%. This means that the headline expenditure GDP number was flat, because inventories and net exports between them, took off 0.6%pts from growth. That is, in the absence of the fall in inventories, net exports and the statistical discrepancy - GDP growth would have been 1.0%. The data doesn’t lie.
Now inventories look to have fallen because production didn’t quite manage to keep up with this strong demand (from consumers, business and government). No doubt wholesalers, retailers and manufacturers etc thought the world was going to end in Q3 because they foolishly read the papers, and so, decided to cut production. Indeed if it wasn’t for our more grounded farmers, who saw an 18.5% surge in quarterly production, GDP on the production side would have been modestly negative. Indeed non-farm GDP was, but again this includes the detractions from stocks and net exports - so ease off on the pessimism.
Exports for their part and as we know, fell 2.4% in Q3 following very strong growth in Q2 (5.9%, and the strongest growth since June 1997). So it’s a base effect. It doesn’t represent a slowdown in demand for Aussie goods or China collapsing or any other nonsense. It’s just noise."
